New York Life - Marketing Management Case Analysis

Topics: Pension, Summation, Retirement Pages: 3 (922 words) Published: May 31, 2011
BAB25 – Case analysis 2: New York Life and Immediate Annuities Unlike the old days where a retiree could rest assured that they could live out the rest of their life on their pension and social security checks, the retirees of today receive their pensions paid out in a lump sum that takes the place of the pension check, but encompasses the total amount a retiree has to live on until they pass away. This creates uncertainty in the amount a retiree can spend per month, and if the total amount is sufficient to last them until they pass away. Immediate annuities help to create certainty in the financial situation of retirees. While retirees can be certain that they will receive a social security check each month, the amount of income they are able to receive from their pensions can vary depending on their contribution plan. Immediate annuities are a one-time purchase that guarantees a monthly payment for the remainder of the purchaser’s life. They solve the problem well as they take away the uncertainty of where a retiree can receive their income from, they are the “ideal vehicle to guarantee retirees a lifetime income” (Rotemberg & Gourville, 2010, p. 2). Generally speaking, neither the buyers (the retirees) nor the sellers (agents/advisors) of immediate annuities are very enthusiastic about them. Consumers have several interrelated reasons for not buying immediate annuities. Firstly people are often not familiar with immediate annuities, which evidently causes fewer buyers. Then, buying immediate annuities means spending a large sum of money as usually immediate annuities cost at least $100.000 or more. This large sum of money has to be paid at once, while the purchase is irrevocable which causes doubts, most importantly because the retiree does not know if they will live long enough to make the purchase profitable. If not, more money will be put in the purchase than they will get out of it, meaning it is quite a gamble to buy immediate annuities...
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